Two other asset classes also attracted negative attention though on a smaller scale. A third of managers saw the risk of a bubble in euro-zone government bonds. An additional 13% said there is already a bubble.
A fifth of managers said there was a bubble in gold, which has offered strong returns in the recent risk-averse climate. Another 20% said there is a risk of a bubble in the near future
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Niklas Tell, the editor-in-chief of Morningstar in Europe said: “Such sentiment could be a signal that investors should be considering other asset classes rather than those traditionally seen as safe havens.
“Investors are still suffering from the TMT [Technology, media and telecoms] bubble which started to burst three years ago.”
Heading east
In terms of regions Asia excluding Japan was seen as most likely to outperform over the next year. Some 40% of managers chose this part of the world while a quarter picked America. Europe excluding the UK was third with 23%. Eastern Europe, a new addition to the survey choices this month, followed with 9%.
There was a strong dip in sentiment towards Japan with 46% of managers ranking it the worst region over the next year. This was nearly double the proportion of managers compared with February. On the other hand Europe excluding the UK, which tied for worst last month, dropped to 21%.
Managers are confident of improving stockmarket returns with 95% of those surveyed expecting shares to be higher in a year. Some 44% said at least 10% higher while 38% said 5-10%. There was caution at the extremes of this question with fewer people expecting returns of 15% or more and more expecting negative returns.
The euro continued its reign as the managers’ favourite currency with 77% backing it. It has been the top currency for 15 consecutive months. The dollar followed with 20%.
The choice for worst performing currency was a close call between the yen with 39% and the dollar with 34%. This was an improvement for the dollar but a worsening for the Japanese currency.
Fund launches
Fund managers said balanced funds – those that offer a mixture of fixed income and share exposure will dominate new fund launches over the next 12 months. Funds investing in shares came second with 25%. Fixed income (bond) funds were at 21%. Some 87% of those questioned intended to launch new funds in next year.
Looking at style revealed an increasing bias towards growth shares over value shares. Managers also said the shares of large firms were likely to outperform those of smaller firms.
In terms of fixed income products some 61% of managers said short term products will outperform long term ones. Almost all managers surveyed said corporate debt will outperform government debt over the next 12 months.
Financial services replaced healthcare as the managers’ choice for the top performing sector over the coming year. Software followed with 15%, up from 5% in February. Industrial materials (which includes aerospace & defence, building materials and chemical manufacturers) and telecommunication tied for third place with 13% each.
Some 18% each said consumer goods (which includes clothing, cars, drinks, luxury goods and tobacco) and energy would perform worst over the same time period. Utilities followed closely behind with 17%.
Morningstar’s European offices conducted the survey from March 12th-21st. The participants, 64 fund management groups from 12 countries, on average managed €46 billion (£31 billion) and offered 88 retail funds each.
